By Alden L. Benton
Since the election, the media has been busy spreading fear and lies regarding the so-called fiscal cliff.
The fiscal cliff is a media moniker, a sound-bite friendly name for a set of circumstances Congress set in motion.
One part of the equation is that the reduced tax rates from the Bush administration will expire. If Congress and the president fail to act, the tax rates of every American will automatically increase. Included will be a retroactive (to the 2012 tax year) reinstatement of the alternative minimum tax.
Part two of the saga of the fiscal cliff involves last summer’s debt ceiling deal. As part of that deal, Congress set up a panel that came up with a laundry list of arbitrary cuts to the federal budget. The largest of these cuts will affect defense spending.
Democrats refuse to learn from the past. Their ideas for a government-controlled economy, predicated on massive spending and taxation, has failed where, and whenever it has been tried.
When an economy is struggling (another reality they fail to grasp), it is counterproductive to take money out of the hands of investors (not all of whom are wealthy) and consumers by raising taxes. Reducing taxes on all levels of income stimulates investment and increases consumption, driving the economy out of the doldrums. Reducing taxes actually increases tax revenues.
Congress and the president can avoid the fiscal cliff. However, there is a train wreck about to happen that Congress has failed to stop.
On January 1, 2013, five new Obamacare taxes take effect, increasing taxes $268 billion.
Americans for Tax Reform reports that beginning next year the following taxes will be imposed:
The Obamacare Medical Device Tax – $20 billion tax increase
Medical device manufacturers employ 409,000 people in 12,000 plants across the country. Obamacare imposes a new 2.3 percent excise tax on gross sales – even if the company does not earn a profit in a given year. In addition to killing small business jobs and impacting research and development budgets, this will increase the cost of your health care – making everything from pacemakers to prosthetics more expensive.
The Obamacare “Special Needs Kids Tax” – $13 billion tax increase
The 30-35 million Americans who use a Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs will face a new government cap of $2,500 (currently the accounts are unlimited under federal law, though employers are allowed to set a cap).
There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are several million families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax provision will limit the options available to these families.
The Obamacare Surtax on Investment Income – $123 billion tax increase
This is a new, 3.8 percentage point surtax on investment income earned in households making at least $250,000 ($200,000 single). This would result in the following top tax rates on investment income:
Capital Gains Dividends Other* 2012 15% 15% 35%
2013+ (current law)
23.8% 43.4% 43.4%
The table above also incorporates the scheduled hike in the capital gains rate from 15 to 20 percent, and the scheduled hike in dividends rate from 15 to 39.6 percent.
The Obamacare “Haircut” for Medical Itemized Deductions – $15.2 billion tax increase
Currently, those Americans facing high medical expenses are allowed a deduction to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). This tax increase imposes a threshold of 10 percent of AGI. By limiting this deduction, Obamacare widens the net of taxable income for the sickest Americans. This tax provision will most harm near retirees and those with modest incomes but high medical bills.
The Obamacare Medicare Payroll Tax Hike — $86.8 billion tax increase
The Medicare payroll tax is currently 2.9 percent on all wages and self-employment profits. Under this tax hike, wages and profits exceeding $200,000 ($250,000 in the case of married couples) will face a 3.8 percent rate instead. This is a direct marginal income tax hike on small business owners, who are liable for self-employment tax in most cases. The table below compares current law vs. the Obamacare Medicare Payroll Tax Hike:
All Remaining Wages
Current Law 1.45%/1.45%
Obamacare Tax Hike 1.45%/1.45%
To the 59 million voters who voted for Obama and the Democrats I ask, “How are those tax increases going to work for you?”
This is just the beginning.
Can you spell deluded? I knew you could.
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